Abstract
The costs of a long-lasting banking crisis are high because both the depositors and the investors lose confidence in the banking system. For a rapid recovery from such a crisis, the government often undertakes Crisis Resolution Policy (CRP) measure(s). Existing studies have paid little attention to these CRP measures and their correlations with long-lasting banking crises. This study fills that literature void. The major finding is that the CRP measure that allows the regulation forbearance to keep the insolvent banks operative is strongly significant in increasing the duration of a banking crisis. Another CRP measure, which relieves bank borrowers from paying debt, is also significant but weakly significant in increasing the duration of a crisis.
Notes
1 Portfolio equity and debt flows are subject to large reversals during financial crises (Dadush et al., Citation2000; Lipsey, Citation2001). Therefore, the countries affected by the crises can expect to face tougher terms and conditions in order to regain such Private Capital Flows (PCFs). Furthermore, the long-term costs of PCFs are also high for an economy (Loungani and Razin, Citation2001).
2 The data on Deposit Insurance Scheme (DIS) come from Garcia (Citation1999), McCarthy (Citation1980), Talley and Mas (Citation1990), De Lange (Citation1992) and Kyei (Citation1995).
3 Klingebiel (Citation2000) and Calomiris et al. (Citation2004) find a mixed success record of using the centralized Asset Management Company in achieving the goal of accelerating the recovery from crisis spells.
4 See Honohan and Klingebiel (Citation2003) for supporting views of using variable Corruption. The higher the value, the lower the corruption.